India's Economy Expands At Record Rate

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India's economy grew at a record 9.4 percent last year - its fastest pace in nearly two decades. But as Anjana Pasricha reports from New Delhi, growth levels could moderate in the coming year.

The government says the 9.4 percent growth in the fiscal year that ended in March is higher than earlier expectations. It is also the fastest growth since 1989, and was fueled by robust growth in manufacturing, exports, and the services sector.

Finance Minister P. Chidambaram says growth rates of over eight percent for a fifth straight year show that the time has come to "shed skepticism about the sustainability of high growth" in India.

Independent analysts agree, and say the economy is expected to maintain strong growth over the next five to six years.

Economist D.K. Joshi says high domestic demand in recent years has fueled investment in sectors ranging from cement and steel to automobiles and telecommunications.

"With the demand being so high, the existing capacity was not able to service the demand, so a lot of investments were taking plac," said Joshi. "So now investment has become the driver of growth."

However, economists say the coming year could see a slight dip in growth rates as banks stop extending low-cost loans to consumers in a bid to cool the economy.

They also point out that India is unlikely to be able to match the more than ten percent growth that has been taking place in the world's other big economy - China.

Economist Joshi says India's full potential is being held back by the country's grossly inadequate infrastructure.

"I think moving from the current rates of growth to over ten percent, that will be a challenge," he said. "If your electricity is priced higher and is unreliable, if your ports are congested, that can actually slow down our growth momentum, that is the immediate concern."

But overall, optimism remains high. And that is being reflected in the country's stock markets, which traded at some of their highest levels after the latest growth numbers were released recently.